The main focus of this paper is to examine the impact of the real effective exchange rate on economic growth in Sierra Leone. First an analytical framework is developed to identify the determinants of the real effective exchange rate. Using quarterly data and employing recent econometric techniques, the relationship between the real effective exchange rate and economic growth is then investigated. A bivariate Granger causality test was also employed as part of the methodology to examine the causal relationship between the real exchange rate and economic growth. The empirical results suggest that the real effective exchange rate correlates positively with economic growth, with a statistically significant coefficient. The results also indicate that monetary policy is relatively more effective than fiscal policy in the long run, and evidence of the real effective exchange rate causing economic growth was profound. In addition, the results showed that terms of trade, exchange rate devaluation, investment to GDP ratio and an excessive supply of domestic credit were the main determinants of the real exchange rate in Sierra Leone.

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This study investigates the relationship between inflation and economic growth, and determines the threshold level of inflation in Sierra Leone, using a non-linear model (quadratic function) with time-series data from 1980 to 2020. The study employs the Ordinary Least Squares estimation technique within the framework of Hendry’s General-to-Specific approach to obtain a parsimonious result. The results of the unit root test confirm that all the variables are stationary in the first difference, i.e. they are integrated of order one or I(1), with an optimal lag length of two (2). The findings confirm the presence of a non-linear relationship in the inflation-growth nexus. The results reveal that the threshold level of inflation (optimal level of inflation) favourable for economic growth is 10.3 per cent. Thus, inflation is growth-enhancing in Sierra Leone when it is below 10.3 per cent, (i.e. ≤ 10.3 per cent). However, inflation above the threshold is detrimental to economic growth. The results also indicate that economic growth is largely influenced by investment, openness and dummy variable for war, with statistically significant coefficients. Specifically, the results confirm that both openness and investment have a positive impact on economic growth, whilst war dummy has a negative effect on economic growth. The results suggest that the regressors explain 86% of the variation in economic growth and the F-stat reveals that the regressors are jointly significant. The policy implication of this study is that the central bank should implement a prudent monetary policy aimed at maintaining inflation below the threshold level of 10.3 per cent. In this regard, the authorities should follow a rule-based approach to monetary policy implementation rather than discretion in order to contain inflation at the threshold level.

The main objective of this paper is to investigate the determinants of export performance in Sierra Leone. The study uses annual time series data from 1980 to 2018 within the ARDL bound testing framework. The stationarity test indicates that all the variables are I(1) series, whilst the bound test result shows there is cointegration. The result reveals that FDI, REER and dummy variable for war are the main determinants of export performance in the long run. Also, the result confirms that FDI and inflation are the significant variables influencing export performance in the short run. Furthermore, with a coefficient of 0.51, the result indicates that 51 percent of any disturbance emanating from previous year's shocks will be corrected in the current year. The diagnostic test reveals that, approximately 69 percent of the variation in export performance is determined by the exogenous variables as evident by the R-square value. Overall, the probability value of the F-statistic (0.000000), shows that model is significant. The results of CUSUM and CUSUMSQ statistics indicate parameter stability. In order to improve the country's export performance, the paper recommends that government should ensure macroeconomic stability, design incentive mechanisms to encourage foreign direct investment and also maintain a politically stable economy.